The Business Ethics Blog

From BusinessWeek Online, It’s A Little Easier Being Green: Consumers and companies are giving alternative energy a boost with “green tags”

Martin Hughes is not your typical hybrid-driving, clean-energy fanatic. Hughes and his wife, both longtime oil-industry veterans, zoom around Houston in no-compromise vehicles. His, a Nissan Xterra SUV. Hers, a zippy Volkswagen Passat.

Yet when Hughes heard last year about an environmental startup called TerraPass Inc., he was intrigued. The Menlo Park (Calif.) company sells “green tags,” which cost up to $80 a year and which are designed to offset the emissions a car spews into the air during that period. After taking a small cut of each sale, TerraPass pools its members’ fees and invests them in clean energy production, including wind power. Hughes checked out the service online last August and then forked over $129 for two TerraPass windshield decals. “I was impressed,” he says. “It’s a for-profit product that allows you to exercise your conscience.”

The story goes on to explain that companies all over the U.S. are buying “green tags” as a way of offsetting their energy consumption.

Green tags have several ethically interesting features.

• First, they allow polluters (direct or indirect) to avoid taking direct action to reduce their own pollution. That is, rather than actually changing their behaviour, companies can now buy green tags (most of the price of which goes to getting other companies to change their behaviour.) Some will find this feature offensive.
• Second, this is an effective strategy, in terms of reducing pollution. If we care about promoting good outcomes (and not just about who takes the blame for what), then green tags seem like a good idea.
• Green tags seem to make the most sense where it’s more efficient for a polluter to buy someone else’s reduction in pollution than to cut its own pollution…which will be the case wherever there are serious technological or practical barriers to changes in consumption. So, for example: an urban SUV driver paying $800 for a green tag to support a local bicycle co-op is simply off-setting pollution that she arguably doesn’t need to emit in the first place. On the other hand, a small-business owner who needs an SUV, and who donates $800 to the bike co-op rather than spending thousands to switch to a hybrid SUV is doing something good.
• The idea of a “tag” is crucial. A simple green “credit” would do just as much immediate good: a company like Starbucks could simply pay for someone else’s energy-consumption, feel good about it, and leave it at that. But a “tag” (or certificate) has the additional feature of allowing the company to show the world the good it’s doing. In some cases, this will mean getting credit where credit is due. Sometimes it will mean something closer to greenwashing. But it’s a new dimension along which to evaluate corporate behaviour. It’s time for everyone interested in evaluating corporate behaviour to start getting literate in the language of green tags.

Sorry, another Wal-Mart posting.

From Reuters: “Wal-Mart sells ‘Brokeback’ DVDs despite protests”

Wal-Mart Stores Inc., the world’s largest retailer, went ahead with plans this week to sell DVD copies of the gay-themed film “Brokeback Mountain” despite protests from a Christian advocacy group.

The American Family Association, which called for a boycott against Ford Motor Co., for advertising in gay publications, recently began pressing Wal-Mart to refuse to carry the award-winning movie in its 3,700-plus U.S. stores.

The Tupelo, Mississippi-based group accused Wal-Mart of abandoning its “family-friendly” corporate image by selling the film, about two cowboys who carry on a homosexual love affair.

Most people like the idea of consumer activism, and the idea of big companies bowing to public pressure. But for most of us, that ends as soon as we see a company bowing to demands we disagree with.

So, there are a lot of people who would rejoice if Wal-Mart acceded to public demands to stop selling, say, guns, but who would be angered if Wal-Mart acceded to public demands to stop selling Brokeback Mountain.

Of course, guns kill people. (Or, if you like, guns are used by people to kill people. Whatever.) There have been, to the best of my knowledge, no instances of innocent bystanders being killed with a Brokeback Mountain DVD. Groups like the American Family Association, of course, believe (some of them) that the homosexuality portrayed in the film is either evil in and of itself, or will have some kind of corruptive effect on families, social fabric, etc. The former claim (that homosexuality is immoral) is rejected — formally, at least — by all Western nations. The latter claim — that homosexuality, or its portrayal, will have negative social consequences is an empirical claim, one for which no convincing evidence exists.

But deep disagreeement about these two cases is unlikely to go away. So, retailers like Wal-Mart are left with hard decisions about what kinds of public pressure to bow to.

I’ll merely suggest two philosophical touchstones, starting points for those of you interested in thinking more about this problem.
1) John Stuart Mill’s “harm principle.” Mill’s ‘harm principle’ says, roughly, that you shouldn’t have a law against something if it doesn’t harm anyone. Simply finding a behaviour objectionable is not enough to warrant passing a law against it (even if a large majority were to find it objectionable). (For more: see Mill’s “On Liberty”)
2) John Rawls’s notion of “public reasons”. Rawls held that deep disagreement is a central feature of life in a modern, liberal democratic society. He also held that the existence of such disagreement is reasonable. Rather than try to argue away disagreement, Rawls held that we ought to seek good deliberative procedures that would allow us to make pragmatic decisions in spite of ineliminable disagreements. One key principle that Rawls suggests ought to guide such deliberations is that the reasons brought to bear should be “public” ones. That is, they ought to be reasons that are consistent with the shared values of a democratic people. (My apologies to Rawls scholars for the roughness of this explanation.) (For more: see Rawls’s “Justice as Fairness”)

Of course, both Mill and Rawls were talking about public decision-making, rather than decision-making by private institutions like Wal-Mart. But in a sense, a mega-retailer like Wal-Mart plays a role akin to that played by public institutions. Given both its size, and the fact that corporations are made possible by various pieces of public law, a case might be made that corporate decision-making on contentious issues ought to be guided by the best available philosophical principles designed for public deliberation. So (and here’s a good thesis project), are there corporate analogies to Mill’s harm principle and Rawls’s notion of public reasons? Are they defensible?

This Blog is dangerously close to becoming the “Wal-Mart Ethics Blog.” This is not my plan, but interesting stories about the world’s largest retailer just keep popping up!

Yesterday, Reuters had this:
Wal-Mart to open stores in blighted areas

Wal-Mart Stores Inc., under fire from a host of critics for its business practices, on Tuesday said it would open more than 50 stores in distressed areas and help small business around those locations thrive once the discount chain moves in.

The world’s biggest retailer, often blamed for driving mom-and-pop stores out of business, said it would offer business development grants to nearby companies and give them free in-store advertising as part of a new economic development program.

Wal-Mart will also hold seminars for minority and women-owned business owners on how to become Wal-Mart suppliers, as well as seminars for all surrounding small businesses on how to compete in a community with a Wal-Mart.

Here are 3 perspectives on this story. Make up your own mind:

• “This is window-dressing. It’s damage-control. After a few years of harsh criticism, Wal-Mart is going to spend a few bucks on helping the ‘little people,’ and then brag about it, like, forever.”
• “This is atonement. However late, however reluctantly, Wal-Mart is going to try to buy its way out of purgatory.”
• “This is classic (now mainstream) Corporate Social Responsibility. It’s an example of a company helping a range of stakeholders in a way that, yes, looks good, and may have other kinds of synergistic positive implications for the bottom line.”
• Oh, and option 4 is “All of the above.”

Personally, I have no idea what’s motivating this move by Wal-Mart. You may have an opinion, but backing that up will be difficult. After all, most of us have trouble divining the motives of people we know well. Accurately determining the motives of an organization as large & complicated as Wal-Mart seems much harder. So, what are we to do, when corporate motives are so unclear?

Update: Here’s the NYT’s take on this story

Last week I posted a limited defense of Wal-Mart.

Peter over at CredoAdvisors has written up a thoughtful response.

From the rumour mill: A spokesperson for Ken Lay has apparently announced that the former Chairman of Enron will donate the last of his much-diminished fortune to sponsor a business ethics essay contest for college students.

The contest will apparently invite entries in several categories, with winners in each category receiving appropriate prizes, including:

“Best Paper on Business & the Environment.” Prize: a fully tricked-out SUV.
“Best Paper on Ethical Issues in Customer Service.” Prize: a Dell laptop.
“Best Paper on Corporate Philanthrophy” Prize: a lifetime supply of Reebok running shoes.
“Best Paper on Energy Conservation.” Prize: a gift basket featuring a range of petroleum products, courtesy of Exxon
“Best Paper on Ethics & Governance.” Prize: framed, autographed copy of the Enron Code of Ethics.

So far, this rumour has not been substantiated, but some details can be found here and here.

Here’s a fun story, with an irritating title, from Salon.com: Who needs ethics laws? We have real-estate records, by Tim Grieve. [You should be able to view the story for free; but you might have to agree to watch a commercial to get to it.]

Citing an Associated Press story, Grieve writes:

According to the story, Ryun bought his Capitol Hill house from the Family Network for $410,000 in December 2000. He paid $19,000 less than the Family Network had paid for it two years earlier — an unlikely deal, as anyone who has followed the Washington, D.C., housing market can tell you. The house is now valued at $764,310.

The Ryun revelations come just months after the political life of Rep. Duke Cunningham gave way to bribery charges because a scrappy reporter stumbled upon real-estate records that showed a defense contractor had sold Cunningham his house at a $700,000 loss.

First, the thing that’s irritating about the title (though it’s not Tim Grieve’s fault) is the term “ethics laws.” It’s a silly and misleading term. Most good laws prohibit activities that are also unethical. So, in a sense most laws are “ethics laws.” So, it’s a poor term for the particular sub-set of laws discussed in the Salon.com story, namely laws established to regulate things like conflict of interest and bribery.

(I’ve blogged about the distinction between ethics & law before, in discussing the way the term “corporate ethics” has come to mean something like “not breaking the law,”, and again in discussing theEnron trials.)

What’s fun about the story is that it’s about investigative reporters cleverly hunting down evidence of wrongdoing by lobbyists and the politicians they lobby. Of course, the rhetorical question in Grieve’s title is also off-base: we need laws prohibiting this sort of behaviour precisely so that, when an investigative reporter digs it up, someone can be called to account not just by the media and the public, but by the courts.

From BusinessWeek Online today: Wal-Mart’s Organic Offensive.

Wow. The world’s largest retailer is planning to make a big dent in the organic foods market. Yes, Wal-Mart, everyone’s favourite symbol of corporate avarice, is aiming to become a leading purveyor of the archetypical goody-goody lefty-progressive counterculture boutique consumer good.

But not everyone is happy about this (which is what makes the title of the article a play on words. Get it?)

Richard DeWilde has a long history with organic farming. His grandfather, Nick Hoogshagen, adopted the organic approach five decades ago on his farm in South Dakota, well before it became popular with consumers…
But DeWilde isn’t thrilled. Instead, he’s dismayed at the prospect of Wal-Mart becoming a player in the organic market. He fears that the company will use its market strength to drive down prices and hurt U.S. farmers. “Wal-Mart has the reputation of beating up on its suppliers,” says DeWilde. “I certainly don’t see ‘selling at a lower price’ as an opportunity.”
He’s hardly the only one. Many farmers who have benefited from the strong demand and healthy margins for organic goods are fretting that the market’s newfound success also brings with it newfound risks.

Now, I’m not about to say anything anti-farmer. Most farmers work much harder than I do, and deserve every penny they make. But still, it’s a little hard to have much sympathy for the idea that organic foods should be priced so that only people driving Volvos while sipping Starbucks cappucinos can afford them.

More interesting, perhaps, is the worry that Wal-Mart (and other major corporate players) might use their influence in Washington “to lower the standards for what is classified as organic food,” and that they might import ostensibly “organic” food from China, which would hurt American farmers and (in some people’s eyes) render the authenticity of the supposedly organic foods suspect.

But the article ends on an up note. It reminds us that a retailer the size of Wal-Mart is capable of changing the way suppliers do business. The result of Wal-Mart entering the market for organics might well mean an overall increase in the supply of organic foods.

While some farmers are concerned that Wal-Mart may try to squeeze them financially, there could be a more benign impact. Farmers who now use pesticides and other chemicals could turn to organic farming, as they see increased demand.

(Of course, just how much credit Wal-Mart deserves, here, depends in part on what we think of organic foods. Certainly, using less pesticide & so on seems like a good thing, from an environmental point of view. But there’s at least some reason to doubt whether organic foods are any healthier than other foods).

I recently had the pleasure of helping out at a student-run event where the focus of discussion was ethical assessment of Wal-Mart.
I had the unenviable (but not impossible) task of saying some nice things about Wal-Mart.

Here are the highlights of what I said:

• It’s important to keep separate our moral evaluation of some of the bad business practices that have been observed at Wal-Mart (forced overtime, discriminatory hiring & promotion, etc.), on one hand, and our moral evaluation of Wal-Mart’s business model and its large-scale impact. The former are indefensible, and must be changed. The latter are at least worthy of debate.
• Wal-Mart’s business model is to focus on price. Low, low, prices, mostly for consumers who are very sensitive to price. (Contrast this with Starbucks; their business model is to sell boutique coffee to those of us willing to spend $5 for a shot of caffeine.) The primary beneficiaries of this business model are Wal-Mart’s low-income customers. (Not all of their customers are low-income, of course. But for those who are, Wal-Mart’s prices can mean saving as much as a couple thousand dollars a year, per household. That has a very, very significant effect on quality of life.)
• Wal-Mart has been criticized for its anti-union stance. But we have to remember that while unions may typically benefit employees, they typically hurt consumers. Unionization would mean Wal-Mart’s costs would go up; and in a retail environment in which even a successful company like Wal-Mart has only a 3.5% profit margin, that can only mean that prices would have to rise (which, of course, would hurt the working poor).
• Wal-Mart didn’t get where it is by being a monopoly (it’s got lots of competitors), or by advertising (it does very little advertising, for a company its size). It got where it is by being really good at delivering decent products at very, very low prices. It’s done that by adopting excellent supply-chain management techniques (including cutting-edge information systems), and by forcing suppliers to become more efficient.
• A lot of the frustration with low wages and poor health benefits at Wal-Mart are off-target. We have to remember that retail jobs, in general, are not well-paying. Nor is Wal-Mart a laggard in terms of health insurance, compared to others in that industry. A lot of the troubles experienced by Wal-Mart employees are the sad result of having few opportunities, and living in one of the few industrialized nations without universal health insurance.
• Finally, my prediction for Wal-Mart? You can quote me: within 5 years, Wal-Mart will be at the TOP of at least some business ethics / corporate social responsibility / corporate citizenship rankings. (They currently lag just barely behind their major competitors.) It has the resources, both financial and organizational. And it’s facing intense public scrutiny. It’s got a lot at stake. Those are the ingredients that turned Nike from a sweat-shop horror-story into an model of socially responsible apparel manufacturing. My guess is that, 5 years from now, Wal-Mart will be a leader (at least in terms of the standard, measurable indicators), and will be pushing its competitors and suppliers alike to meet their standard.

Here are some relevant links:

• From The Economist Opening up the big box:
• From The Washington Post Progressive Wal-Mart. Really.
• The Wal-Mart Effect : How the World’s Most Powerful Company Really Works (a book by Charles Fishman)
• Measuring the Economic Impact of Wal-Mart on the U.S. Economy (a study by Global Insight)
• From Maclean’s magazine: Why Wal-Mart is Good.

(Thanks to Joe Heath & Wayne Norman for useful feedback & discussion on this.)
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(Edited April 2010 to remove one dead link and fix a broken one.)

Reuters had this story today, “Scientists seek biotech answer to hunger”, about researchers in the U.S. working to genetically tweak sorghum (a cereal crop) to make it richer in essential nutrients.

An estimated 300 million people in arid regions of Africa rely on sorghum as a food source along with other crops. But while conventional sorghum is already known to do well in drought conditions, it lacks certain key nutrients.

By taking genes from other crops as well as manipulating genes within the sorghum plant itself, scientists believe they can remake sorghum into a more easily digestible crop richer in vitamins A and E, iron, zinc and amino acids and protein.

Pioneer Hi-Bred International, a subsidiary of Dupont, is a key U.S. partner and the sole commercial player in the endeavor. Pioneer has donated $4.8 million in gene technology, and is lending manpower and facilities for visiting African scientists at its Johnston headquarters.

The claim is often made that biotechnology will bring huge benefits to the world’s developing nations. In particular, it’s often — too often — claimed that genetically modified (GM) foods will do wonderful things for the starving millions in Africa. It seems to me that the question is not whether biotechnology could help the developing world, but rather whether it will. For biotech actually to help developing nations, it seems that one of two things has to happen. Either governments and NGO’s need to spend a lot of money to donate biotech products or know-how, or companies need to find business models that let them a) do good, while b) making a profit. The company involved in this story (Pioneer Hi-Bred) is frank about its business model:

Pioneer will have no rights to revenues from the biotech sorghum once it is developed and commercialized, said Anderson. But the company, already locked into tight competition in the commercial seeds market, hopes that success with biotech sorghum might help open doors for other biotech crops in countries currently skeptical of genetically altered crops.

The point here is that African countries have been very, very wary of GM foods — in some cases, African governments have rejected donations of GM food that would have saved lives. So, Pioneer is hoping GM sorghum will be the thin edge of the wedge. Some people will find this alarming. I don’t (since I don’t think there’s any good reason to worry about GM foods in general.) But you’ve got to admit, the company’s candour about its business model is pretty disarming.

A couple of days ago, MSNBC featured a commentary by Art Caplan (director of the Center for Bioethics at the University of Pennsylvania), on a couple of recent clinical drug trials that went very wrong. One of them happened in London, and the other in Montreal.

Caplan writes:

Last week, six very healthy men suddenly wound up in a London hospital in critical condition. Earlier this month, 11 otherwise well people tested positive for tuberculosis, according to Montreal’s health department. What do these people have in common? All were human subjects in research paid for and conducted by private companies. These mishaps mean that the time has come to take a closer look at how commercialized research involving human subjects is being conducted all over the world.

Caplan’s very reasonable conclusion is to call for tighter regulation of the companies that now conduct so many drug trials for pharmaceutical corporations:

The recent events in London and Montreal make it clear that it is time for Congress and other regulatory bodies here and overseas to take a hard look at how clinical research is being done these days. Many of those in the for-profit business of conducting clinical research may be doing their best, but they and their sponsors had best be putting the safety and welfare of their subjects first. Otherwise they should have no business doing clinical research.

Tighter regulation is of course a great idea here. This is a situation where vulnerable lives are being put in the hands of the lowest bidder, and research subjects are being recruited by physicians who often receive finder’s fees that place them in a very, very serious conflict of interest. But I can’t help wondering if a public-policy response is the only response available.
From the point of view of business ethics, we might ask the following questions:

• What can the industry do to towards better self-regulation? (And what moves on the part of government — legislative, exhortative, or financial — could inspire better self-regulation?)
• What factors have resulted in the failure of leadership in these corporations? We all know that the tone is set at the top. What are pharma CEO’s doing wrong?
• Has anyone, either in academia or industry, written up anything like a set of ‘best practices’ for the business side of commercial clinical trials?
• Is there anything peculiar (or just inadequate) about the ownership structure or governance structures of the pharmaceutical industry that makes failures of this kind more likely? (There is a literature on these issues for corporations in general. See, for example: “Why do corporations become criminals? Ownership, hidden actions, and crime as an agency cost”)

(See also my previous posting on “What Causes Unethical Behaviour.”)